Forecasting strong performances by Lionsgate’s young adult franchises, Standard and Poor’s has upgraded the studio’s corporate rating to BB- from B+.
“We believe the ‘Hunger Games’ franchise’s continued success (with the last film scheduled for release on Nov. 20, 2016) and the potential success of the ‘Divergent’ franchise (which has three films scheduled for release March 2015 through 2017) could provide greater predictability for Lionsgate’s profitability and credit profile for the next few years,” analysts Naveen Sarma and Chris Valentine wrote.
The BB- rating is one level below the top speculative grade of BB+. The analysts also gave the studio a “stable” outlook in a note published Tuesday.
“The stable outlook reflects our expectations that Lionsgate will broaden its cash flow base by firmly establishing new film franchises, expanding its film library cash flow, and growing its TV production segment profitably — all of which could reduce earnings volatility,” they said.
The analysts added that the biggest near-term risk to their rating is Lionsgate’s ability to replace the “Hunger Games” franchise, which has generated over $2.2 billion worldwide from its three titles. “Divergent” grossed about $290 million worldwide last year.
The agency also said Lionsgate’s expansion of TV production — which includes “Orange Is the New Black” and “Anger Management” — has the potential for “recurring profitability” if it produces shows that move into syndication.